Due to the surge of private equity (PE) investment over the past few years, several growth and expansion opportunities have arisen within the accounting industry. However, the ownership stakes of PE firms in accounting have also introduced complex challenges for risk management, compliance, and independence.
If you’re a risk professional at a firm that has recently received PE backing, you’re likely grappling with a critical question: How does your financial sponsor’s portfolio impact your firm’s independence requirements? The answer is more complex and consequential than you may anticipate.
The private equity revolution in accounting
The influx of PE capital into accounting represents a structural shift in how firms access capital, fuel growth, and compete in an increasingly consolidated market. PE firms see tremendous value in accounting’s stable revenue streams, growth potential through technological transformation, and opportunities for consolidation in a fragmented industry.
This investment surge has led to the creation of alternative practice structures (APS), where firms typically split into two entities.
- Traditional CPA-owned firms responsible for attest services
- Separate entities for non-attest services, such as tax and advisory, that can receive PE investment
However, while this structure addresses basic regulatory requirements, it creates a complex independence ecosystem that extends far beyond the accounting firm itself.
A new independence minefield
When your accounting firm takes outside investment from PE, it becomes part of the financial sponsor’s investment complex alongside its entire portfolio of companies. This creates a sprawling network of entities with independence implications that can catch many firms unprepared.
Consider the following scenarios.
- Portfolio company audit conflicts: Your firm may be asked to audit a company that happens to be part of your financial sponsor’s portfolio. Even with the APS structure, this creates significant independence concerns that could impair your ability to serve that client.
- Hidden relationship networks: Your financial sponsor’s other portfolio companies may have business relationships with your audit clients, creating indirect independence threats that are difficult to detect without sophisticated systems.
- Material relationships assessments: Recent regulatory amendments have introduced a “dual materiality test” for portfolio companies. Although this provides some relief, it requires complex, ongoing assessments of relationship significance that most traditional independence systems weren’t designed to handle.
Intensified regulatory focus
The regulatory landscape isn’t static — it’s evolving specifically in response to PE investments in accounting. Here are just a few recent developments.
- The AICPA’s Professional Ethics Executive Committee formed a dedicated task force to revise independence rules related to alternative practice structures, with formal guidance anticipated by late 2025.
- The PCAOB has identified auditor independence as a priority for inspections, with plans to conduct independence-focused sweeps and publicly disclose violations.
- The SEC expressed concerns that accounting firms have not fully evaluated the current and future impacts of complex PE structures on auditor independence.
As one recent regulatory comment noted, regulators believe that transactions with investors that are not traditional accounting firms “elevate the risk of impairment to an auditor’s independence.” This elevated scrutiny means independence issues that might have previously gone unnoticed are now more likely to trigger regulatory action.
A risk to your financial sponsor’s exit strategy
Beyond regulatory concerns, independence issues created by your sponsor’s portfolio have direct commercial implications that may affect your firm’s valuation and your sponsor’s exit strategy.
PE firms typically aim to maximize return on investment within a relatively short timeframe. Independence issues that limit your firm’s ability to serve clients or expand services can directly reduce your firm’s growth potential and, consequently, your valuation at exit.
More concerning, significant independence violations discovered during due diligence by a future buyer could derail a transaction entirely or lead to significant price reductions. A financial sponsor that has invested millions in your firm’s growth expects a clean exit, so independence issues that threaten this outcome will face intense scrutiny from your investors.
Modernized independence management
Traditional approaches to independence management simply cannot address the scale and complexity that PE ownership introduces. Here’s why a centralized, technology-driven approach is no longer optional.
- Portfolio visibility: Advanced solutions for client risk assessments and independence management can integrate with corporate tree services to map your financial sponsor’s entire portfolio and flag potential independence conflicts before they become compliance issues.
- Automated monitoring: As your sponsor acquires or divests portfolio companies, your independence landscape shifts. Technology solutions can continuously monitor these changes and alert you to emerging conflicts.
- Personal independence management: To effectively track employees’ financial interests against both clients and your sponsor’s portfolio companies, your firm requires sophisticated systems that can handle complex relationship webs.
- Audit-ready documentation: When regulators or due diligence teams investigate your independence controls, having a centralized system with comprehensive documentation demonstrates your commitment to compliance.
- Accelerated client onboarding: Without technology, the added complexity of PE relationships can significantly slow your client acceptance process. Automated solutions enable thorough checks without compromising speed to revenue.
Fortified independence and growth
As PE investment continues to reshape the accounting industry, firms that proactively address independence challenges will gain competitive advantages in client onboarding speed, regulatory compliance, and, ultimately, firm valuation.
The most successful PE-backed accounting firms have recognized that technology investments in independence management deliver returns far beyond mere compliance — they protect both the firm’s growth and the financial sponsor’s exit strategy.
By implementing a comprehensive, technology-driven approach to independence, you can transform a compliance burden into a strategic advantage that supports your firm’s growth ambitions and your financial sponsor’s investment objectives.
Learn more about how Intapp can help your PE-backed accounting firm manage independence.